Employee Benefit Plans

12 Months Ended

Dec. 31, 2017

Retirement Benefits [Abstract]

Employee Benefit Plans

Note 7 - Employee Benefit Plans

Pension Benefits

The Company’s Pension Plan covers all active employees hired prior to April 1, 2007. Employees hired after March 31, 2007 are not eligible to participate in this plan, but can participate in a defined contribution profit sharing plan that provides an annual contribution at the discretion of the Company, based upon a percentage of

the participants’ annual paid compensation. In order to be eligible for contribution, the eligible employee must be employed by the Company on December 31^st of the year to which the contribution relates. The Company maintains an unfunded supplemental plan for its executive officers. The Accumulated Benefit Obligation for the Company’s Pension Plan at December 31, 2017 and 2016 was $75.7 million and $66.8 million, respectively.

Other Benefits

The Company’s Other Benefits Plan covers substantially all of its current retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. Accrued retirement benefit costs are recorded each year.

Regulatory Treatment of Over/Underfunded Retirement Obligations

Because the Company is subject to regulation in the states in which it operates, it is required to maintain its accounts in accordance with the regulatory authority’s rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance of ASC 980, Regulated Operations. Based on prior regulatory practice, and in accordance with the guidance in ASC 980, Regulated Operations, the Company records underfunded Pension Plan and Other Benefits Plan obligation costs, which otherwise would be recognized in Other Comprehensive Income under ASC 715, Compensation – Retirement Benefits, as a Regulatory Asset, and expects to recover those costs in rates charged to customers.

The Company uses a December 31 measurement date for all of its employee benefit plans. The tables below set forth information relating to the Company’s Pension Plan and Other Benefits Plan for 2017 and 2016.

	(Thousands of Dollars)
	Pension Plan						Other Benefits Plan
	December 31,
	2017			2016			2017			2016
Change in Projected Benefit Obligation:
Beginning Balance	$	78,601		$	72,542		$	48,888		$	46,249
Service Cost		2,399			2,308			1,089			1,099
Interest Cost		3,143			3,046			1,964			1,952
Actuarial Loss		6,203			2,810			3,052			141
Benefits Paid		(2,333	)		(2,105	)		(648	)		(553	)
Ending Balance	$	88,013		$	78,601		$	54,345		$	48,888

	December 31,
	2017			2016			2017			2016
Change in Fair Value of Plan Assets:
Beginning Balance	$	59,370		$	52,931		$	31,607		$	29,018
Actual Return on Plan Assets		8,543			4,909			3,521			1,591
Employer Contributions		3,635			3,635			1,603			1,551
Benefits Paid		(2,333	)		(2,105	)		(648	)		(553	)
Ending Balance	$	69,215		$	59,370		$	36,083		$	31,607
Funded Status	$	(18,798	)	$	(19,231	)	$	(18,262	)	$	(17,281	)

	(Thousands of Dollars)
	Pension Plan				Other Benefits Plan
	December 31,
	2017		2016		2017		2016
Amounts Recognized in the Consolidated Balance Sheets consist of :
Current Liability		374		373		—		—
Noncurrent Liability		18,424		18,858		18,262		17,281
Net Liability Recognized	$	18,798	$	19,231	$	18,262	$	17,281

	(Thousands of Dollars)
	Pension Plan									Other Benefits Plan
	Years Ended December 31,
	2017			2016			2015			2017			2016			2015
Components of Net Periodic Benefit Cost
Service Cost	$	2,399		$	2,308		$	2,558		$	1,089		$	1,099		$	1,373
Interest Cost		3,143			3,046			2,894			1,964			1,952			1,921
Expected Return on Plan Assets		(4,489	)		(4,014	)		(3,919	)		(2,406	)		(2,213	)		(2,107	)
Amortization of Net Actuarial Loss		1,566			1,426			1,645			1,781			1,773			2,261
Amortization of Prior Service Credit		—			—			—			(1,728	)		(1,728	)		(1,728	)
Net Periodic Benefit Cost	$	2,619		$	2,766		$	3,178		$	700		$	883		$	1,720

Amounts that are expected to be amortized from Regulatory Assets into Net Periodic Benefit Cost in 2018 are as follows:

	(Thousands of Dollars)
	Pension Plan		Other Benefits Plan
Actuarial Loss	$	1,658	$	1,787
Prior Service Credit		—		(1,607	)

The discount rate and compensation increase rate for determining our postretirement benefit plans’ benefit obligations and costs as of and for the years ended December 31, 2017, 2016 and 2015, respectively, are as follows:

	Pension Plan			Other Benefits Plan
	2017	2016	2015	2017	2016	2015
Weighted Average Assumptions:
Expected Return on Plan Assets	7.50%	7.50%	7.50%	7.50%	7.50%	7.50%
Discount Rate for:
Benefit Obligation	3.53%	4.06%	4.26%	3.53%	4.06%	4.26%
Benefit Cost	4.06%	4.26%	3.91%	4.06%	4.26%	3.91%
Compensation Increase for:
Benefit Obligation	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%
Benefit Cost	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%

The compensation increase assumption for the Other Benefits Plan is attributable to life insurance provided to qualifying employees upon their retirement. The insurance coverage will be determined based on the employee’s base compensation as of their retirement date.

The Company utilizes the Society of Actuaries’ mortality table (RP 2014) (Mortality Improvement Scale MP2017 for the 2017 valuation).

For the 2017 valuation, costs and obligations for our Other Benefits Plan assumed a 9.0% annual rate of increase in the per capita cost of covered healthcare benefits in 2018 with the annual rate of increase declining 1.0% per year for 2019-2021 and 0.5% per year for 2022-2023, resulting in an annual rate of increase in the per capita cost of covered healthcare benefits of 5% by year 2023.

A one-percentage point change in assumed healthcare cost trend rates would have the following effects on the Other Benefits Plan:

	(Thousands of Dollars)
	1 Percentage Point
	Increase		Decrease
Effect on Current Year Service and Interest Costs	$	649	$	(499	)
Effect on Projected Benefit Obligation	$	9,412	$	(7,403	)

The following benefit payments, which reflect expected future service, are expected to be paid:

	(Thousands of Dollars)
Year	Pension Plan		Other Benefits Plan
2018	$	2,639	$	1,174
2019		2,653		1,414
2020		2,875		1,614
2021		2,971		1,816
2022		3,360		2,027
2023-2027		23,789		11,674
Totals	$	38,287	$	19,719

Benefit Plans Assets

The allocation of plan assets at December 31, 2017 and 2016 by asset category is as follows:

	Pension Plan						Other Benefits Plan
Asset Category	2017		2016		Target		2017		2016		Target
Equity Securities		62.8%		59.7%		55%		57.7%		54.1%		43%
Debt Securities		33.6%		36.6%		38%		32.9%		43.3%		50%
Cash		1.0%		1.0%		2%		9.4%		2.6%		2%
Real Estate/Commodities		2.6%		2.7%		5%		0.0%		0.0%		5%
Total		100.0%		100.0%				100.0%		100.0%

Two outside investment firms each manage a portion of the Pension Plan asset portfolio. One of those investment firms also manages the Other Benefits Plan asset portfolio. Quarterly meetings are held between the Company’s Pension Committee of the Board of Directors and the investment managers to review their performance and asset allocation. If the actual asset allocation is outside the targeted range, the Pension Committee reviews current market conditions and advice provided by the investment managers to determine the appropriateness of rebalancing the portfolio.

The objective of the Company is to maximize the long-term return on retirement plan assets, relative to a reasonable level of risk, maintain a diversified investment portfolio and maintain compliance with the Employee Retirement Income Security Act of 1974. The expected long-term rate of return is based on the various asset categories in which plan assets are invested and the current expectations and historical performance for these categories.

Equity securities include Middlesex common stock in the amounts of $0.8 million (1.1% of total Pension Plan assets) and $0.8 million (1.4% of total Pension Plan assets) and as of December 31, 2017 and 2016, respectively.

Fair Value Measurements

Accounting guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

· Level 1 – Inputs to the valuation methodology are unadjusted quoted market prices for identical assets or liabilities in accessible active markets.

· Level 2 – Inputs to the valuation methodology that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. If the asset or liability has a specified contractual term, the Level 2 input must be observable for substantially the full term of the asset or liability.

· Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Certain investments in cash and cash equivalents, equity securities, and commodities are valued based on quoted market prices in active markets and are classified as Level 1 investments. Certain investments in cash and cash equivalents, equity securities and fixed income securities are valued using prices received from pricing vendors that utilize observable inputs and are therefore classified as Level 2 investments.

The following tables present Middlesex’s Pension Plan assets measured and recorded at fair value within the fair value hierarchy:

	(Thousands of Dollars)
	As of December 31, 2017
	Level 1		Level 2		Level 3		Total
Mutual Funds	$	57,608	$	—	$	—	$	57,608
Money Market Funds		677		—		—		677
Common Equity Securities		10,930		—		—		10,930
Total Investments	$	69,215	$	—	$	—	$	69,215

	(Thousands of Dollars)
	As of December 31, 2016
	Level 1		Level 2		Level 3		Total
Mutual Funds	$	49,439	$	—	$	—	$	49,439
Money Market Funds		648		—		—		648
Common Equity Securities		9,283		—		—		9,283
Total Investments	$	59,370	$	—	$	—	$	59,370

The following tables present Middlesex’s Other Benefits Plan assets measured and recorded at fair value within the fair value hierarchy:

	(Thousands of Dollars)
	As of December 31, 2017
	Level 1		Level 2		Level 3		Total
Mutual Funds	$	20,819	$	—	$	—	$	20,819
Money Market Funds		3,388		—		—		3,388
Preferred Equity Securities		115		—		—		115
Agency/US/State/Municipal Debt		—		11,761		—		11,761
Total Investments	$	24,322	$	11,761	$	—	$	36,083

	(Thousands of Dollars)
	As of December 31, 2016
	Level 1		Level 2		Level 3		Total
Mutual Funds	$	17,096	$	—	$	—	$	17,096
Money Markey Funds		826		—		—		826
Preferred Equity Securities		108		—		—		108
Agency/US/State/Municipal Debt		—		13,577		—		13,577
Total Investments	$	18,030	$	13,577	$	—	$	31,607

Benefit Plans Contributions

For the Pension Plan, Middlesex made total cash contributions of $3.6 million in 2017 and expects to make approximately $3.3 million of cash contributions in 2018.

For the Other Benefits Plan, Middlesex made total cash contributions of $1.6 million in 2017 and expects to make approximately $1.6 million of cash contributions in 2018.

401(k) Plan

The Company maintains a 401(k) defined contribution plan, which covers substantially all employees with more than 1,000 hours of service. Under the terms of the Plan, the Company matches 100% of a participant’s contributions, which do not exceed 1% of a participant’s compensation, plus 50% of a participant’s contributions exceeding 1%, but not more than 6%. The Company’s matching contribution was $0.6 million for each of the years ended December 31, 2017, 2016 and 2015.

For those employees hired after March 31, 2007, and still actively employed on December 31, 2017, the Company approved, and will fund, a discretionary contribution of $0.5 million which was based on 5.0% of eligible 2017 compensation. For each of the years ended December 31, 2016 and 2015, the Company made discretionary contributions of $0.4 million for qualifying employees.

Stock-Based Compensation

The Company has a stock compensation plan for certain management employees (the 2008 Restricted Stock Plan). The Company maintains an escrow account for 0.1 million shares of the Company's common stock for the 2008 Restricted Stock Plan. Shares issued in connection with the 2008 Restricted Stock Plan are subject to forfeiture by the employee in the event of termination of employment within five years of the award other than as a result of normal retirement, death, disability or change in control. The maximum number of shares authorized for grant under the 2008 Restricted Stock Plan is 0.3 million shares, for which less than 50,000 shares remain as unissued shares. The 2008 Restricted Stock Plan terminates on March 31, 2018.

The Company recognizes compensation expense at fair value for the 2008 Restricted Stock Plan awards in accordance with ASC 718, Compensation – Stock Compensation. Compensation expense is determined by the market value of the stock on the date of the award and is being amortized over a five-year period.

The following table presents information on the 2008 Restricted Stock Plan:

	Shares (thousands)			Unearned Compensation (thousands)			Weighted Average Grant Price
Balance, January 1, 2015		127		$	1,483
Granted		33			741		$	22.65
Vested		(12	)		—
Forfeited		—			—
Amortization of Compensation Expense		—			(528	)
Balance, December 31, 2015		148		$	1,696
Granted		24			750		$	30.85
Vested		(25	)		—
Forfeited		—			—
Amortization of Compensation Expense		—			(682	)
Balance, December 31, 2016		147		$	1,764
Granted		22			799		$	36.95
Vested		(20	)		—
Forfeited		(2	)		(54	)
Amortization of Compensation Expense		—			(724	)
Balance, December 31, 2017		147		$	1,785

The fair value of vested restricted shares was $0.8 million and $0.9 million as of December 31, 2017 and 2016, respectively.